Month: June 2012

The equity market is leaking oil: Asset Manager

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With US stocks extending losses on Monday, one asset manager says the stock market is like a car that is leaking oil, adding that the lack of strong policy action by politicians in Europe is likely to lead to more volatility and further declines in US equities this year.

“The equity market is kind of leaking oil and (Treasurys) are kind of creeping up. I think that`s going to continue,” Tom Yorke, Managing Director, Oceanic Capital Management told CNBC Asia`s “Squawk Box” on Tuesday. “The politicians have really come out with a lot of noise, but not anything substantive in terms of action.”

Stock markets around the world dropped on Monday as investor hopes for a solution from this week`s European Union summit faded. On Tuesday morning, Asian equities opened lower, with the Nikkei 225 dropping 0.7%.

“I just see this volatility continuing to go up,” Yorke said. “It just doesn`t seem like there`s any rhyme or reason for a lot of the moves we see out there.”

Investors are increasingly moving in and out of stocks, rather than following a buy and hold strategy, leading to the market volatility, according to US analyst Alan Newman. Analysts blame the market`s moves on high-frequency trading and the disappearance of the individual investor.

Yorke said the firm invested clients` money in a broad basket of non-correlated assets, such as domestic equities and bonds, as well as precious metals and emerging markets in order to reduce volatility in portfolios. He pointed out the occurrence of `Black Swan` or extremely rare events had increased making it important for investors to have a defensive component in their asset allocation.

According to him, the firm had an allocation of around 15 to 20% of cash in its conservative portfolios and 5% or less cash in its aggressive portfolios.

“If you`re not losing USD 100 every day, you don`t need to make USD 200 the next day,” Yorke said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Looking to weather volatility? Try these Asian plays

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Samsung Electronics, COSCO Pacific, Ayala Land and Cathay Pacific are some stocks that will fare well even as market volatility and economic uncertainty continue into the second half of the year, according to a report by HSBC Global Research.

Herald van der Linde, Head of Equity Strategy, Asia Pacific and Garry Evans, Global Head of Equity Strategy of the British bank, looked at criteria such as earnings resilience, structural changes in demand, strength of corporate balance sheet and valuations, and picked the stocks they think would likely to outperform regardless of up or down swings.

South Korea`s Samsung Electronics, for example, will benefit from the shift from notebooks to tablets, thanks to Apple`s iPad, HSBC said. The company`s Note, a smartphone-and-tablet hybrid offering, is expected to increasing its blended average unit selling price over the next few months and keep operating profit margins of its handset unit at 20%.

The bank also likes China`s COSCO Pacific, one of the top five port investors in the world and the world`s third-largest lessor of containers.

“COSCO Pacific remains our preferred play in the Asian port and shipping sector, given its attractive valuation and relatively resilient earnings outlook,” van der Linde and Evans said in the report.

We believe that a turnaround of COSCO Pacific`s terminal investments (Piraeus, Guangzhou-Nansha) and a strong leasing business will drive its profitability (10% profit CAGR in 2011-14) in the forecast period.”

HSBC has a 12-month target of 1,760,000 won (USD 1,519) for Samsung`s stock, representing an upside of about 41%, and a target of HK$14.40 (USD 1.85) for COSCO Pacific, or a 42.5% increase from the stock`s current price.

Other Asian stocks that will be able to weather a global downturn include Ayala Land, Philippines` largest listed real estate firm, which could rise about 11% to 24.15 peso (57 US cents), and Cathay Pacific, Hong Kong`s flagship airline, which HSBC forecast could gain 41% to HK$17.50.

“We expect Ayala Land to progressively develop and/or re-develop land parcels across the country held under its strategic land bank segment,” the bank said. “Increased mortgage availability to a wider segment of the population and on better terms is likely to drive demand for residential property in locations where developments were previously not feasible.”

Cathay Pacific is HSBC`s favorite premium airline in Asia and while the bank expect a somewhat “lackluster outlook”, there could be a silver lining in lower oil prices.

“All else same, every 5% fall in fuel price could raise our 2012 recurring net profit estimate for Cathay by 10%,” the analysts say. “We therefore believe that lower fuel price will help to offset a weak revenue environment. We argue that Cathay`s strong home base, which we believe is the best positioned gateway into southern China and its greater exposure to North America generate a superior medium-term outlook.”

Other than these firms, HSBC also likes India`s Titan Industries, Powergrid and HDFC, Thailand`s Total Access, Taiwan`s AUO, China`s Hengan, Hengdeli and China Overseas Land and Investment, Indonesia`s Kalbe Farma, South Korea`s Hyundai Motor, and Singapore`s Sembcorp Marine.

– By CNBC`s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is the Aussie dollar becoming a safe-haven currency?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Australia belongs to that exclusive club of countries with a AAA rating and its currency has been resilient, despite worries about slowing growth in its biggest trading partner, China. Now global central banks are stepping up their purchases of the Aussie dollar.

That`s raising the question whether the Aussie, once one of the most volatile risk currencies, is changing colors into more of a safe haven.

Russia`s central bank has become the latest to consider wading into the nation`s assets. The country will allocate A$5 billion (USD 5.025 billion), or 1% of its foreign currency reserves, to Australian-dollar assets such as government bonds, according to a report by Dow Jones Newswires on Monday.

This follows media reports earlier this month that Germany`s Bundesbank was exploring adding Australian dollar assets such as bonds, as it stepped up meetings with Australian banks to discuss its foreign-exchange strategy.

“The Aussie looks far less ugly than most other major currencies and is increasingly serving as a safe haven,” Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole in Hong Kong, told CNBC. “But I don`t think the Aussie is a safe haven in the traditional sense in the way that the Japanese yen and Swiss franc are, as Australia continues to sustain a sizeable current account deficit.”

“The liquidity of the Aussie is far lower than the US dollar and the Euro, meaning that it will still only form a small but growing part of global forex reserves,” he added.

What Australia has going for it is its ability to draw strong capital inflows, both of portfolio and direct investment flows, to finance the current account, Kotecha said. The nation`s debt-to-gross-domestic-product ratio remains quite low while economic growth is relatively positive compared to other developed economies.

Australia is one of 14 countries that has an triple-A rating from Standard and Poor`s and although its central bank has cut official interest rates by 75 basis points since May to 3.5% and prices of commodities – the country`s largest exports – have been falling, the Aussie dollar has been resilient, trading close to parity with the US dollar.

It was trading at USD 1.0027 against the greenback as of 3:30 pm in Sydney on Monday.

John Noonan, senior currency strategist with Thomson Reuters in Sydney, agrees that while the Aussie dollar has become a more attractive investment, its direction is tied to China`s economy and therein lies the big risk.

“The Aussie dollar has become a bit of a safe-haven currency and that is why it managed to hold up reasonably well when the euro zone tensions were peaking,” Noonan said. “But the Aussie dollar would become vulnerable – safe-haven or not – if the China growth story becomes clouded and hard landing fears intensify.”

Like Noonan, Sebastien Galy, senior currency strategist at Societe Generale in New York, thinks that the Australian economy relies too heavily on commodity prices and on Asia. Galy believes Australian sovereign debt is outperforming now because of the troubles in the rest of the developed economies but this may not last.

“Should these global imbalances suddenly correct rapidly, Australia would suffer and the more so as it relies heavily on Asian funding,” Galy said. “The impact on the currency depends on the degree of severity of the crisis. In average to mild scenarios, its perceived safe haven status is likely to keep the pair more elevated than it should be, likely between USD 0.90 and USD 1.08. The risk is that the scenario is more severe than is currently expected.”

-By CNBC`s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Europe likely to dominate market as EU Summit approaches

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Europe’s debt crisis could again eclipse most other market factors Tuesday as traders count down to the European leaders summit later in the week.

Fears that the European debt crisis will continue to drain strength from the global economy and concern the EU leaders will make little progress this week weighed on stocks and oil but pushed gold and the dollar higher Monday.

“I still think they have to come up with something material at the summit,” said Boris Schlossberg, managing director of FX Strategy at BK Asset Management. “Nobody expects them to do something about euro bonds. I think it’s pretty much off the table. But some sort of pan-European banking system that would guarantee deposits is definitely necessary. Otherwise, they’re facing this chronic risk of bank runs. I think they understand they just can’t let things be.”

The Dow sank 138 points to 12,502, and the S&P 500 fell 21 to 1313, while the Nasdaq lost 56 points to 2836. Tech was the worst S&P sector, losing 2.2%, followed by financials, down 2.1%. Energy stocks were down 1.9%, as oil futures on Nymex ended down 55 cents at USD 79.21 a barrel.

Natural gas rose 2.6%, finishing at USD 2.694 per million BTU as Tropical Storm Debby forced the shut in of some oil and gas production in the Gulf. Corn was nearly 7% higher, and other grains also rose, as rising temperatures in the Midwest threatened crops.

But traders spent the day watching Europe, particularly after the Supreme Court did not release its ruling on the health-care legislation. That ruling is now expected Thursday.

There were a series of events in Europe that got attention Monday. Spain officially requested aid for its banks, but details were sparse. Greece, which delayed its Monday meeting with IMF and European officials on its bailout, announced that its finance minister resigned. He had been hospitalized with an illness.

But what had traders grumbling were comments from German Chancellor Angela Merkel, including that a common debt would be “economically wrong and counterproductive.” Leaders will discuss a banking union at their two day meeting, starting Thursday. Germany has previously opposed a common bond, supported by France, Italy and Spain.

“My reading of this is she’s really caught in a bind,” said Milton Ezrati, economist and market strategist at Lord Abbett. “All of Europe wants the Germans to pay for everything with no conditions. She has to set conditions. I think in the end she knows she has to pay. She just wants to get the bigger bang for the buck and protect the German taxpayer. She’s playing hardball. Ultimately the Germans are going to make concessions, but they’re not going to be the concessions that are demanded. I think they’re going to ease the austerity conditions.”

On Tuesday, traders will be watching a Spanish bill auction of three to four billion euros in three and six-month bills.

“It’s very short term so it’s not a pivotal auction, but it’s the only test we have of the markets,” said Ezrati. “There’s always the secondary market, but the auctions always would be a better notion.”

“If that goes not as badly as people fear then it could give the market a lift. It doesn’t have to be good, just as long as it’s not as bad as people fear,” he said.

Ezrati said the markets are looking for something that could generate confidence in the European effort. “It’s been a series of failures,” he said.

“Europe holds all the cards. If they can agree to something or at least appear to agree to something, at least they make headway. I think the wild card here is the European Central Bank,” he said.

Ezrati said the ECB could step in again and make sovereign debt purchases. “That to me would relieve the market tremendously. Short of that, they (leaders) have to agree, but I think that’s a bad bet in the short term.”

There are also US economic reports on Tuesday, including S&P/Case-Shiller home prices at 9 a.m. and consumer confidence at 10 a.m. The Richmond Fed survey is released at 10 a.m., and it’s being watched because of the disappointment with the Philadelphia Fed survey last week.

The US Treasury auctions USD 35 billion in two-year notes at 1 p.m.

Follow Patti Domm on Twitter: @pattidommQuestions?  Comments? Email us at marketinsider@cnbc.com

© 2012 CNBC.com

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German resistance may prove ‘fatal’ to Europe: George Soros

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Germany’s resistance to a banking union and stimulus measures is in the way of a solution to Europe’s debt crisis, and could turn this week`s meeting of the region`s leaders into a “fiasco”, according to billionaire investor George Soros.

German Chancellor Angela Merkel has so far rebuffed all proposals to help relieve Spain and Italy from the jump in their borrowing costs and has resisted allowing the European Central Bank (ECB) to step up buying of peripheral sovereign debt. That poses a threat to the region`s stability, Soros said in an editorial in the Financial Times on Monday.

“This threatens to turn the June (28) summit into a fiasco which may well prove fatal because it will leave the rest of the euro zone without a strong enough firewall to protect it against the possibility of a Greek exit,” Soros wrote.

“Even if a fatal accident can be avoided, the division between creditor and debtor countries will be reinforced and the “periphery” countries will have no chance to regain competitiveness because the playing field is tilted against them.”

France and Italy are urging Germany, the region`s largest economy, to take decisive action to end the two-and-a-half-year old debt crisis as Spain`s 10-year bond yields jumped to more than 7 percent last week. Merkel has opposed “premature” proposals for issuing euro-area bonds backed by the ECB, arguing that such debt can`t be sold until there is a full fiscal union for the region.

This is however “unrealistic and unreasonable”, Soros said, adding that a political, fiscal and banking union have to be “developed together step-by-step”.

The first step towards this would be for the EFSF (European Financial Stability Fund) to immediately take over the ECB`s holdings of Greek bonds, and the ECB to start buying Spanish and Italian bonds. This will calm financial markets and pave the way for a political and banking union, Soros said.

Concerns over Europe, particularly Spain`s and Italy`s ability to finance their debt, caused the two nations` bond yields to spike earlier in the week. They have since retreated, aided by speculation that European leaders will take action at the Brussels meeting on Thursday.

Spain`s 10-year-bond yields retreated to 6.38% on June 22 and comparable Italian yields slid to 5.8% after climbing to as much as 6.17% on June 18.

A longer-term solution has to be found for the crisis in Europe, Soros said, and he proposed a so-called European Fiscal Authority (EFA) to be set up to buy Spanish and Italian bonds in exchange for structural reforms.

Under Soros` proposal, this fund will buy the bonds with European Treasury Bills issued and backed by the ECB and every euro zone member-nation. These Bills would therefore receive a zero-risk weighting from regulators and have very low yields.

There should be plenty of demand for the Treasury Bills, especially from banks which urgently need risk-free liquid assets, Soros added.

“Banks are currently holding more than 700 billion euro (USD 878 billion) of surplus liquidity at the ECB, earning only one quarter of one per cent interest,” Soros said. “This assures a large and ready market for the Bills at one percent or less.”

The EFA would also have the authority to impose a fine or other form of penalty should a participating country fail to live up to its commitments, Soros said, adding that the countries would then have to agree on debt reduction programs, which would not jeopardize economic growth.

This should pave the way towards banking, fiscal and political union and the German parliament should not be in the way of such a solution, Soros said.

“If the rest of Europe is united behind this proposal and the Bundestag (German parliament) rejects it, Germany must take full responsibility for the financial and political consequences,” he warned.

– By CNBC`s Jean Chua

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Treasury yields will hit 1% by year end: Market Watchers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US 10-year Treasury yields will hit 1% by the end of the year, as the so-called “fiscal cliff” has investors running to the safety of government debt, several market watchers told CNBC on Monday.

Gerard Minack, Asset Manager at Morgan Stanley, got the bearish ball rolling on CNBC Asia’s “Squawk Box.” He said investor anxiety about the tax increases and spending cuts which will happen at the start of next year, could be the catalyst for a US recession and a fresh plunge in yields.

“We know exactly when the next US recession is going to start. It’ll start January 1, 2013,” said Minack. “We see a very small window from the first Tuesday in November (election day) to December 31 to sort that mess out. It’s going to make last year’s debt ceiling debate look like a walk in the park.”

The debt-ceiling debate was a major risk event in the US last year which triggered a plunge in stock markets. The crisis was eventually resolved through a complex deal where the Congress agreed to raise the debt ceiling and reduce proposed increases to future government spending.

Nick Maroutsos, Portfolio Manager at Kapstream, agrees with Minack, saying the 10-year Treasurys could “absolutely” hit 1%  by the time we ring in the New Year. “Government officials are dragging their feet in Europe and the US economy is slowing down, so the likelihood of hitting 1% is certainly out there,” said Maroutsos, who recently sold out of government bonds completely in favor of highly-rated corporate debt.

US Treasurys prices fell on Friday as investors prepared for USD 99 billion in new short- and intermediate-dated debt this week, reducing safe-haven demand. The benchmark 10-year notes fell 17/32 in price to yield 1.675%.

Darryl Guppy, CEO of GuppyTraders.com layered a concurring technical opinion on top of the pessimistic calls.

“If you take a long-term trend line into 2013, yes, the bottom of that is down around the 1% level. It’s possible,” said Guppy.

While economist Tony Farnham of Patersons Securities is fully on board with the 1% call in the near term, he believes the US dollar may soon lose its appeal and reduce demand for Treasurys.

Some point the US dollar will lose a degree of its safe haven status and with that, of course, people won’t need to go to the good old trusted US dollar parking area of Treasurys,” he said.

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Oil prices to weaken further: Survey

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil prices are set to soften further this week after data showed a slowdown in business activity from Europe to the US and China reflecting continued deterioration in the global economy, according to CNBC’s weekly survey of oil market sentiment. Middle East tensions and the US hurricane season may limit the declines.

Overall, weaker energy prices are being viewed as a ‘tax cut’ and a form of stimulus for consumers, some economists say, as gasoline prices dip below USD 3.00 a gallon in some US states.

Lower commodity prices are a “silver lining” keeping inflation tame and offering central banks room to ease policy, said Dominic Rossi, Global CIO, Equities at Fidelity Worldwide Investment told ‘Squawk Box’ on Wednesday.

Lower prices at the pump may provide a boost for demand this summer driving season in the US though it’s doubtful it’ll be enough to have a lasting impact on prices when macro-economic concerns continue to weigh.

“Forecast of future demand is driving the market and a perfect storm of a US slow down, European crisis, and Chinese hard landing is brewing causing market participants to finally fear downside risk in crude prices,” said Kirk Howell, Chief Operating Officer of SunGard’s Kiodex, who has a ‘bearish’ view in the short term.

“Crude has dropped 25% since late April so it is possible we are oversold in the short-term but risk to the downside remains. Analysts and participants have finally started to notice China may have serious issues. Consistent information is increasingly difficult to obtain but signs continue to point to a potential hard landing,” Howell added.

The start of hurricane season in the US could provide a short-term lift to prices though traders say there are ample stockpiles to compensate for shut-ins in the Gulf of Mexico.

Tropical Storm Debby formed in the central Gulf of Mexico on Saturday and was expected to strengthen into a hurricane as it skirted the Louisiana coast and took aim at Texas, Reuters reported, citing the US National Hurricane Center.

Debby covered much of the eastern Gulf and was centered about 215 miles (346 km) south-southeast of the mouth of the Mississippi River.

The storm had top winds of 50 miles per hour (81 km per hour) and was expected to strengthen into a hurricane by Tuesday night.

Oil and gas producers evacuated workers from oil and gas platforms and shut in production on Saturday as the weather worsened in the Gulf of Mexico, which is home to 20% of US oil production and 6% of natural gas output.

Benchmark London Brent crude prices gained 2% on Friday on the hurricane fears but posted a 6.79% loss for the week, its biggest since the week to June 1. Brent sank to an 18-month low during the week while US light, sweet crude hit their lowest in nearly eight months. Last week’s survey correctly predicted that US crude futures would fall below USD 80 a barrel.

This week, exactly 60%, or six out of the ten respondents in the sample group, expect prices to fall while two believe prices will rise and two say they will remain unchanged.

“Certainly, oil is oversold,” said Tom Weber, Senior Commodity Advisor at Los Angeles-based Portfolio Managers, Inc. “However, with the breach and close below USD 80, we’ll look for continued downward movement towards USD 68. Europe does remain the negative overlay along with a global aggregate lack of growth.”

From the technical perspective, Daryl Guppy, CEO of Guppytraders.com, said prices could stage a short-term rally because of storm-related outages in the Gulf of Mexico though the longer term bias was for weaker prices with a breach of USD 80 on US crude futures paving the way for a drop to USD 78 with USD 68 forming the next major support.

Dominic Schnider, Commodity Strategist at UBS, said growing global oil inventories will prompt the Organization of Petroleum Exporting Countries (OPEC) to cut production, possibly later this year, helping US crude futures “find a floor” at USD 74 a barrel and Brent at USD 89.50. “But if OPEC does not cut production or the US economy shrinks, WTI would likely drop below USD 65. The oil sector is already battling ample availability of supply – especially in the US,” he said.

By CNBC’s Sri Jegarajah

© 2012 CNBC.com

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Why oil prices are lowest they’ve been in months

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The free-fall in crude prices is unlikely to reverse course without significant signs that the world economy is improving.

Oil, like stocks and other risk assets, fell sharply Thursday as fears of slowing global growth gripped markets, which were also beset by speculation about pending bank downgrades and Europe`s sovereign crisis.

But the price of oil has a separate significance in that it is an important lever on the world economy, and its decline could help consumers.

Crude prices have fallen 30 percent from their March highs as oil production globally rose to a record level in May, according to the International Energy Agency.

The world is now pumping 91.1 million barrels per day, the most ever. OPEC production, at more than 31.5 million barrels in May, is also higher than normal.

“I think that we are seeing asset classes moving in response to expectations related to government policy in Europe and the U.S,” said Edward Morse, head of commodities research at Citigroup. “I think they are short-term moves that will not be very long in duration. That doesn`t mean there`s not plenty of bearish news in commodity markets, in general, and the oil market, in particular.”

West Texas intermediate (New York Mercantile Exchange: clcv1) plunged 3.5% Thursday, following government reports of ample supply and domestic production at a 13-year high. WTI finished USD 3.05 lower at USD 78.20 per barrel, the first close below USD 80 since October.

Brent (Intercontinental Exchange Europe: LCOCV1), the international benchmark, fell to USD 89.23 per barrel, the lowest level in 18 months.

While Morse doesn`t expect oil to keep falling for long, he doesn`t expect it to get back to its year highs soon either.

“We think there`s no reason for a sustained price recovery for Brent above USD 100 or WTI above USD 85 through the second half of the year,” he said.

John Kilduff of Again Capital said after oil sinks through USD 78, the next level he is watching is USD 72 per barrel for WTI.

Oil and commodities fell as the dollar rose in its best performance Thursday since November. The fact the Federal Reserve did not announce a new easing program supported the dollar.

Also weak manufacturing data in China and Europe, and a series of disappointments from US jobless claims to the Philadelphia Fed survey, added to the “risk off” temperament of markets Thursday.

In fact, traders say the months-long decline in oil may have been signaling a slowdown in the economy.

Market focus Friday will remain on Europe as finance ministers meet, and the leaders of Germany, France, Italy and Spain meet ahead of next week`s EU summit.

“If the central banks stay put, they may see that oil is helping them out-USD 68 is not unconceivable,” Kilduff said. “We`re producing about a million barrels a day more than we`re consuming. That`s starting to be a lot.”

IHS CERA Chairman Daniel Yergin, speaking from the St. Petersburg International Economic Forum, said the high production level made sense just several months ago, when speculation around Iran reaction to sanctions sent prices higher.

“It was a quite remarkable period when you go back four months ago. Oil prices got as high as USD 128 and people were talking about USD 160, and now it`s at USD 90,” he said.

“It shows three things: the relentless increase in supply, particularly led by the Saudis, who have been producing very steadily at high volumes since last year and the beginning of this year. Secondly, it reflects the growth of oil from countries as diverse as Iraq and the United states,” said Yergin.

“The supply situation is very different than it was three months ago when Iran was threatening to close the Strait of Hormuz, and the other thing is the bad economic news and weak demand,” he added.

The US has restricted dealings with the Iranian central bank, and Europe has sanctioned Iranian oil starting at end of this month.

Yergin said some of the Iranian oil has already been taken out of the market and the drop in oil prices is also pinching Iran, which has been engaged in talks with a group of six nations on its nuclear program.

So far, Iran refuses to abandon its uranium enrichment program, denying it is seeking to develop nuclear weapons.

The Iran situation remains a wild card for oil prices.

While OPEC affirmed last week that it would hold production at 30 million barrels a day, production of oil elsewhere has increased.

“We`re (the US) probably close to 6.4 million barrels a day, the highest in 13 years,” said Andrew Lipow, president of Lipow Oil Associates. “My unofficial estimate compared to last June, is we`re probably up 800,000 barrels, and that is about a 14% increase year over year. It`s huge and it`s being led by North Dakota and Texas. It`s just unbelievable.”

He added: “What we don`t talk about very much is the decline in demand in Europe and that is a good 3% year on year, which is a significant amount.”

Lipow also expects gasoline prices to continue dropping to the point where they could be below USD 3 a gallon nationally by Halloween.

According to AAA, the national average for regular gasoline is USD 3.472 per gallon. That could be a major factor for the economy.

“To me what really matters is how much of consumer income filling the gas tank eats up,” said Ward McCarthy, chief financial economist at Jefferies. “We`ve see it three times now, where gasoline prices get to around $4 a gallon for regular. It takes a bite out of consumer spending. So the further below you get from there the more flexibility it gives consumers. It also gives a boost to consumer confidence.”

Follow Patti Domm on Twitter: @pattidommQuestions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Eternal commodity bulls have ‘thrown in towel’: Marc Faber

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Commodities bulls may have finally “thrown in the towel,” Marc Faber, the editor and publisher of the ‘Gloom, Boom and Doom’ report told CNBC, after commodities suffered their biggest one-day fall this year on Thursday.

“This weakness is a clear indication of a global economic contraction…fundamentals have been deteriorating for some time but now the eternal bulls have thrown in the towel,” Faber said on Friday. “In other words, the perception has changed.”

Faber expects more weakness in industrial commodities, though he said agricultural commodities “look better”.

The Thomson Reuters-Jefferies CRB commodities index lost more than 2 percent on Thursday, its biggest decline this year, bringing it close to its lowest level since September 2010, after disappointing economic data from the U.S. and manufacturing reports from China and Europe pointed to a persistently weak global economy.

West Texas intermediate plunged 3.5%, or USD 3.05 to close at USD 78.20 per barrel, the first close below $80 since October. Gold was trading at USD 1,561.25 per ounce in early trading in Asia on Friday, after losing close to 3% on Thursday.

Andrew Su, CEO of Compass Markets, a Sydney-based commodity broker, said he has been forecasting weakness in commodities since the beginning of the year and does not expect the selling to stop any time soon.

“Fundamentals haven’t changed but investor sentiment certainly has,” Su told CNBC. “We certainly do (expect more downside). All our September quarter targets have either been reached or are very close to being achieved. We will be revising our targets lower soon.”

Analysts are predicting more declines for commodities across the board, including oil and gold.

Sandy Jadeja, Chief Technical Analyst at CityIndex, said oil is on a firm downtrend after breaking below USD 97.51.

“Our expectations are if oil fails to hold USD 80.80 at the close of this week, this could then lead to further prices declines towards USD 75 by next week,” he said. “In order for oil to reverse current (downtrend), it would need to climb above USD 89.”

Daryl Guppy, a technical analyst and trader, is even more bearish, saying that if oil sank below USD 78, there is a high chance it could trade around USD 68.

“Downside pressure is strong and there is no current evidence of any strong consolidation activity,” he told CNBC.

While investors need to wait on the sidelines till the selling stops, Jonathan Barratt, Founder of Barratt`s Bulletin, told CNBC Asia`s “Squawk Box” some of the commodities were now getting cheap.

“We are looking for a few key levels in crude; obviously if we get a break back through on the top side, USD 80.50-$80.60, then we can signal a pretty important low,” Barratt said. “Gold needs to hold above that $1,535 level and we need to see a break back through USD 1,600. It`s there, but I think there`s still a lot of selling pressure.”

– By CNBC`s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Moody’s downgrade of banks ‘absurd,’ says Dick Bove

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The downgrade on Thursday of 15 major international banks and securities firms by Moody’s Investors Service is “absurd” as the financial health of these institutions is at the best it has been in years, one analyst tells CNBC.

“This is one of the most absurd things that Moody’s has ever done perhaps in the history of the company,” said Dick Bove, Vice President of Equity Research in the Financial Sector at Connecticut-based Rochdale Securities.

The fundamentals of the American banking industry point to balance sheets that have improved “dramatically” over the last 4 years, Bove said. Equity-to-assets ratio is as high as they were in 1938, liquidity as a percentage of assets is at a 30-year high, their reserves against bad loans are up, bad loans are down, he said.

“In any metric that you look at… the banks have shown improvement in earnings in every one of the past 11 quarters year over year. If you go into the bond market, where Moody`s did the downgrade, prices of bank bonds are going up. Not only are they going up, they are going up faster than the prices of Treasurys, so what in heavens` name is Moody`s doing?” Bove said.

Bove has been a consistent advocate of buying bank stocks, particularly the large institutions that he says have unfairly become targets of government overreach.

The ratings agency said it downgraded the credit rating of banks that included Bank of America, Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley, because their long-term prospects for profitability and growth are shrinking.

Bove disagrees, saying that banks can easily withstand a “moderate” downturn and even a severe recession as shown by the stress tests at the beginning of the year.

“Since we are not talking about a depression, nor a depression that`s worse than the one that occurred in the 1930s, I don`t see how a downturn of moderate size is going to cause any problem with banks` balance sheet,” he said. “What it will do is to lower the growth of bank earnings. Banks do not do well in weak economies, so it will lower the growth rate of their earnings.”

Stress tests conducted by the Federal Reserve at the beginning of the year showed that the majority of the largest US banks will continue to have enough capital to satisfy regulators, even if they suffer a financial shock that includes unemployment hitting 13 percent and a 21 percent drop in housing prices.

But a moderate slowdown will not impact the banks` financial health, says Bove. “It will not impact their balance sheets, it will not create a financial crisis of any nature,” he added.

– By CNBC`s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow